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The Importance of Research and Development (II)

Researching nowadays is mandatory for our companies which are living in a fast-paced, competitive and more globalized world.

The permanence of the products and services is uncertain and depending on the markets’ sways. All products, from a perfume to a drug, are subject to a life cycle that varies depending on the nature of the product.

Within the chemistry field, a chemical base product (commodity) may have a long life cycle, as in the fine chemistry field could be from 10 to 20 years, within the performance chemicals field can be from 5 to 10 years. Other industrial sectors, such as the automobile one, a new product is released every 3 to 5 years in order to be competitive. This market life cycle depends on the consumption habit from the population, the new needs created from private companies, could also be motivated by the competitors that offer better and more effective products or at a lower cost or even for legal or safety reasons.

A company that does not invest in R+D+i and that offers a wide variety of products to the market is doomed to fail and disappear as a company. Besides, research has to be a continuous and constant process which needs to be part of the DNA of the company or public institution. It is also mandatory the diversification of research so that companies are able to offer a wide variety of products so that in case of failure with one of them there are chances of opportunity with other products or services. An example about the aforementioned is Lipobay, the star drug from Bayer, which years ago had to be withdrawn from the market and, consequently, Bayer had to terminate hundreds of employees and re-structure all the multinational company. This crisis lasted for 5 years until they started their growth. This is the case for a multinational so the effects on a mid-sized company would be even worse.

In Spain there is no research tradition within our companies, as the sad phrase sometimes heard “others should invent not us”, has been a reality since not long ago.

Most of the companies dedicated their activities to speculative economics by purchasing cheap and selling expensive (easy money, not creating any value but creating an economic bubble that exploded years ago). Luckily this situation is changing rapidly in plenty of multinational Spanish companies in diverse areas. This may be due to the companies’ need imposed by the free competence market which is more globalized and free from tariff’s protections all over Europe.

Research must be enhanced and promoted by the public governments so as to generate new products, processes and services as this will impact on our long term economy. Since not long ago, Spanish economy was based on two basic pillars: tourism and building trade (well known in Spain as the “brick economy”). Speaking about tourism, we can demonstrate that currently the tourist profile has a lower purchasing power so, if we want to maintain the tourism income we need to increment the number of tourists which is affecting to the massification of our sea shores. The other basic pillar, building trade and construction has been stabilised as prices dropped and the economy is based in loaning and not purchasing (although the tendency is changing once again). The third pillar is internal consumption (services sector), also based in speculations by purchasing big batches at a low price and selling at a much higher price without adding any value to the product or service.

It is quite disturbing the fact that the industrial or secondary sector has a low proportion within the GDP of our country. Spain is one of the lowest in Europe in terms of industrial contribution to the GDP with a 23 %, compared to Sweden (34 %) or Germany (31 %). If we make an estimation of this contribution for the past 20 years at a constant price, the proportion has fallen about 40 % which is really worrying. Our country is “de-industrializing” and our exterior balance is deficit.

By promoting research and development of new products, services and processes, not only for internal consumption but for exportation we could switch this negative tendency. We are one of the countries in the world in which we have the highest exterior deficit (speaking about commercial balance) which is around 1.7 % of the GDP in 2017 and a 2.5 % in 2016. The solution in order to reach the G8 countries on this terms is to change our speculative mindset to a productive one and changing the country economic model. Sun-based or brick-based economy has to evolve to other sectors or be complemented with other which are not volatile.

The clue is to bet for the industrial sector and R+D+i which are continuously creating new need and added value to our current products, services and processes. Having other countries developing very quickly (such as BRICS, Brazil, Russia, India, China and South Africa) we need to re-think global and long term strategies but the fundamentals have to be focused on research and development. Having countries that are able to produce very cheap (due to their structural costs and cheap workforce) we need to be differenciated by high quality and performance products at a fair price. Other strategic positions can be creating joint-ventures with complementary companies. Our governments must encourage and fund Spanish companies (or countries in a similar situation) so that they do not need to relocate to other countries and be cost-effective in the home country.

If we are not able to foresee this big issue and act consequently, we will turn to a service-economy country not being able to produce anything.